Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly loans.
How to figure your qualifying ratio
Usually, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.
Examples:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
At Selectplus Lending, we answer questions about qualifying all the time. Call us at (818)645-7035.